‘Cliff Effect’ explained at BC Chamber Meeting

At a recent Brown County Chamber of Commerce meeting the guest speaker was Jim Ludwig, director of development at Chatfield College. Ludwig gave a brief, but in-depth report on the “Cliff Effect” and how the challenges of poverty can affect low-income individuals and families, especially single mothers.
Mr. Ludwig explained how the Greater Cincinnati Foundation focuses on helping single mothers who are battling high poverty rates, lower wages and no way out.
“I would just like to talk a few minutes about a study that was done by the University of Cincinnati and the Women’s Fund of the Greater Cincinnati Foundation,” Ludwig began, “I am committed to the topic of poverty in our area. This study was actually based in Hamilton County which has about 800,000 individuals and nearly 145,000 of them live in poverty.
“Women make up 80,000 of those residents. In particular, single mothers face an even greater challenge in their struggle to better their families’ financial situations.”
He continued, “The ‘Cliff Effect’, the terminology is used when a small increase in wages triggers a complete cut-off of public benefits of an individual that often leads to a situation worse than before they received the benefits.”
Ludwig explained that the cliff effect can often cause the individual’s total gross resources to decline which could prevent the individual from taking a job promotion or a raise, and stifles the potential of an individual to better their own circumstances.
“These facts are obviously from a bigger area, but the same process and relevancy is right here in Brown County,” Ludwig said, “We would just have to reduce the numbers by about 20 percent for our area. Cincinnati is either the second or the fifth, depending on who you talk to, highest in the nation for mid-size cities for childhood poverty. We are definitely below Detroit, but also ahead of Miami and Memphis.”
Ludwig asked what department is responsible for calculating poverty, to which his answer was. He said some would think HUD or the census bureau, but they would be wrong. He said the responsible party for calculating poverty would be the Department of Agriculture. He said that decision was made in 1963 based on a minimum food diet times three.
“Since then, it has been adjusted for inflation and the CPI (Consumer Price Index), since that,” Ludwig said, “This study showed that it was time to update all this so they created what they call the ‘self sufficiency standard which now determines if the basic needs, including taxes, without public subsidies.
“So that means, a single mother of one, making $9 per hour as a healthcare aide for 40 hours will bring her annual income to $18,720. With her benefits, the mother is $782 above the self-sufficiency line. But if the woman earns a raise and is making $11 per hour for a 40 hour week her annual income is now $22,880. However, this raise makes her ineligible for certain benefits and she is now $3,493 below the self-sufficiency line.
“The woman’s level of economic gross resources was actually higher when she was making $9 per hour. Factors that hinder a woman’s ability to be self-sufficient include access to affordable child care, education and training, employment and getting a more wanted, living wage careers.
He continued, “One of the reasons I am so interested in this subject is that about 75 percent of the students that attend Chatfield College are women and about 68 percent of them are single mothers, trying to better themselves.”
Ludwig discussed how important it is for people to understand what constitutes self-sufficiency and how more people can move toward it and how to avoid the cliff effect. Recommendations include:
• Develop a common understanding about self-sufficiency
• Increase understanding about the financial fragility of families who are near or slightly above the self-sufficiency level
• Benchmark effective practices for benefits administration in other communities and pilot them locally
• Continue to monitor the Cliff Effect
• Grow good, accessible jobs that provide pathways to the middle class
• Recognize that women are disproportionately represented in low-wage work, encourage career mobility
• Increase the availability and affordability of child care to ensure women can participate fully in the workforce.
To learn more about the cliff effect, or to download the report, please visit www.cincinnatiwomensfund.org or www.economicscenter.org/research for more information